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UK needs a ‘smart power revolution’, says Infrastructure Commission

The UK could save up to £8bn a year by 2030 if it embraces the “smart power revolution” overtaking the energy sector, says the National Infrastructure Commission (NIC).

In its first report, the body set up by chancellor George Osborne asks government and regulators to unlock three innovations: interconnectors, demand flexibility and storage. Together, it says these can help the UK meet carbon targets and secure electricity supplies at lower cost.

Carbon Brief runs through the report’s recommendations and reactions to its findings.

Commission structure

The NIC was set up by the Treasury last October to “enable long term strategic decision making to build effective and efficient infrastructure for the UK”. It exists in interim form with Lord Andrew Adonis, the former Labour transport secretary, as interim chair.

Subject to consultation ending on 17 March, the NIC will become a statutory body. It will be charged with preparing National Infrastructure Assessments once per parliament and ad-hoc special assessments on request from the chancellor.

The commission could have sweeping powers over Whitehall, which would have a duty to implement its recommendations, if endorsed by government. Action to address climate change would not be an explicit aim of the NIC, though it would have to be mindful of the UK’s legally-binding carbon budgets.

In advance of its formal establishment, the Treasury has asked the commission to look at energy infrastructure, connectivity in northern England and London’s transport infrastructure, before the 16 March budget. Its smart power report is the first to be published.

Smart power

The commission says the UK is undergoing a generational shift in its energy sector as ageing power stations retire and low-carbon sources of electricity are added.

The changes to the UK energy sector and the investment needed to renew it represent a “serious challenge and an enormous opportunity”, the NIC says. Moreover, meeting climate goals means the age of fossil fuel power stations must ultimately come to an end, the commission says.

A better-connected, more flexible grid could meet these challenges more cheaply, saving between £2.9bn and £8.1bn per year in 2030, it says. The research behind these numbers is explored below. Greater flexibility could come from three key innovations, the commission says.

There are: interconnectors, massive undersea electricity cables joining the UK to other markets; demand flexibility, where homes and businesses are rewarded for shifting electricity use to reduce peak demand or pick up excess generation; and storage at grid and household level.

The NIC says:

We need to ensure we unlock [flexibility], rather than replicating a system that was designed for a different age.

The old-style system was based around large centralised power stations sending electricity to homes and businesses via a one-way grid. The smart system of the future will involve a two-way grid with storage, responsive demand and small-scale generation.

The report’s really calling for us to move away from a 1960s system where we assume that people demand electricity at different times and the way we manage this is by building a load of big power stations to be on standby to meet that demand. Now…we bring in the demand side, storage, connections to other countries. The report’s main contention is doing it with more of that, as well as the large power stations, means that we can run the system cheaper and more flexibly.

Achieving change

There is a surprising level of consensus across the energy industry in support of the commission’s findings. Lawrence Slade, head of industry group Energy UK, set out very similar views in an interview with Carbon Brief last week.

He said the UK energy sector needed to become more flexible and that it is undergoing a revolution which government, the media and the wider public needed to catch up with.

The NIC has a series of specific recommendations around how to unlock the smart and flexible power system of the future. Government should back new interconnectors linking the UK’s grid to the rest of Europe, with a focus on markets, such as Norway and Iceland.

A background report for the commission says existing plans to raise interconnector capacity to around 11GW by 2020, up from 4GW today, are very likely to bring benefits to the UK. It says more work is needed to understand the benefits and risks of additional links beyond this level.

On storage, the commission says battery costs have fallen from $3,000 per kilowatt hour (kWh) in 1990 to below $200/kWh today. Companies are “already queuing up to invest”, but regulatory barriers are holding them back.

If costs continue to fall, up to 15GW of storage could be economically deployed by 2030, the commission suggests, from large-scale storage through to domestic systems. This would be a mixture of batteries and other storage types. Around 3GW of centralised, mainly pumped-hydro reservoir storage is available today.

The Department of Energy and Climate Change (DECC) and energy regulator Ofgem should review regulations to work out how to smooth the path for storage by spring 2017, making changes as soon as possible. DECC has already committed to consult on barriers to storage this spring.

On demand flexibility, the commission says regulatory and cultural barriers need tackling. There should be trials of new business models that reward flexibility and show off the best of British innovation and data analytics capability. Ofgem should review the landscape by spring 2017.

Value of flexibility

The commission’s top line is that a smart, flexible energy system could save up to £8bn per year in 2030. Where does that come from? A background paper from Imperial College says:

Operational flexibility can significantly reduce the integration cost of intermittent renewables, to the point where their whole-system cost makes them a more attractive expansion option than CCS [carbon capture and storage] and/or nuclear.

Flexibility is a “low regrets” option that is beneficial in a wide range of scenarios, the paper says. The paper in turns draws on research carried out for the Committee on Climate Change. This says:

These savings [of up to £8.1bn] are realised as more variable renewables and inflexible nuclear can be accommodated in a more flexible system, relative to an inflexible system which would require significant deployment of CCS to reach an emissions target.

These conclusions are sensitive to assumptions around the future cost of different electricity generation technologies. In a sensitivity analysis, the research looks at the optimal mix if gas with CCS, wind, nuclear and solar all cost the same amount per unit of electricity generated.

Under this assumption, the lowest cost scenarios for 2030 only include CCS if system flexibility is very low, the study finds. However, CCS has wider uses beyond the power sector, such as decarbonising heavy industry.

Views on smart energy

It’s worth picking up on a few different comments on the commission’s work, which seems to have been broadly welcomed.

One of the few criticisms of the report is that it pays scant attention to energy efficiency, which could reduce peak electricity demand and so reduce the need for new generation capacity.

We do not call for new subsidies or significant public spending, but rather a level playing field through fairer regulation and a better managed network to allow these exciting new technologies to compete.

Ofgem is also looking ahead at what needs to be done so that customers can get the benefits of a more flexible electricity market.

In a statement, National Grid said:

We welcome today’s report by the National Infrastructure Commission, which provides a clear view of the many developments currently taking place in the energy sector…The energy industry is going through a revolutionary change, from where our energy comes from to how it is consumed, and it’s vital that we have network investment and innovative solutions to develop a much more agile and flexible system.

Lisa Nandy, shadow energy and climate change secretary, said in a statement:

These sensible proposals from Andrew Adonis rightly advocate we seize the potential of cutting edge technology and improved power connections with our European neighbours. It is possible to create a cheaper, more efficient and more reliable energy system that cuts pollution and reduces costs for households.

These sensible proposals from Andrew Adonis rightly advocate we seize the potential of cutting edge technology and improved power connections with our European neighbours. It is possible to create a cheaper, more efficient and more reliable energy system that cuts pollution and reduces costs for households.

Emma Pinchbeck, head of climate and energy at WWF-UK said in a statement:

The Commission has outlined a progressive and timely vision of an energy future in which both bills and emissions can stay low. By casting a welcome light over technologies like storage, which have long been overshadowed in energy policy, it has mapped a way ahead that Ministers should embrace. A flexible and innovative energy system will make renewables even more attractive and cost effective – so the government should do more to accelerate the deployment of these technologies.

The Association for Decentralised Energy (ADE) welcomed the report, but said in a statement:

Unfortunately, elements of DECC’s capacity market reforms announced earlier this week will actively work against the commission’s recommendations. DECC must ensure their proposals are carefully reviewed if we are to build a successful market for short-term flexibility provided by energy users and demand response.

James Court, head of policy and external affairs at the Renewable Energy Association, said in a statement:

Many energy storage technologies, both at grid scale and behind the meter, are at or are approaching commercial viability. The pace of innovation is astonishing; in part because of the many economic and security benefits of storage and how urgently the UK needs them. The weight of expectation is now on government and Ofgem to make the legislative and regulatory changes that will have this industry flying.